While British Columbia's economy is slumping, its film and television production industry is going from strength to strength. But it's a dubious achievement, based on a lavish system of production tax credits for foreign-content films and videos that threatens to touch off a subsidy war with the United States.

From a short-term Canadian perspective, federal and provincial subsidies for film and video productions have been hugely successful. Last year, foreign firms alone spent $818-million on film and television production in Canada. That's up from just $211-million during 1991-92.

Close to half of all foreign production in Canada occurs in British Columbia. So many U.S. film and television shows are now shot on location in Vancouver that the city has been dubbed Hollywood North.

In June, Ian Waddell, B.C.'s Small Business, Tourism and Culture Minister, predicted that for the first time, film and television production in the province will reach $1-billion in 1999, making B.C. No. 1 in Canada. "This is great news for British Columbians," he enthused. "This booming industry is not only helping to diversify our economy, it creates new jobs by employing highly trained people."

Vancouver's success is well known in the United States. In Los Angeles last Sunday, more than 2,000 workers in the film and television industry flooded Hollywood Boulevard in protest. It was the second mass demonstration in four months to decry Canadian tax credits that lure Hollywood film producers north of the border. Leaders of the Screen Actors Guild have taken due note of Mr. Waddell's boast that "B.C.'s industry is growing rapidly, primarily as a result of the Film Incentive B.C. tax credit program and the production services tax credit program introduced last year."

The subsidies doled out by these programs are certainly generous. B.C. film companies qualify for refundable tax credits of up to 20% of eligible labour costs, while foreign producers get 11%.

That is not all. In 1997, the Chretien government introduced a refundable tax credit on the federal level equal to 11% of the wages and salaries paid by foreign producers of films or videos to Canadian residents.

There is nothing new or unusual about production subsidies for Canadian content in films and television. British Columbia Film, the agency that administers B.C. film subsidies, notes in its latest annual report that B.C. taxpayers helped subsidize the production of five Canadian feature films during 1997-98. These include Dirty, which it describes thusly: "A darkly comedic slice-of-life ensemble film that takes us on a journey through the emotionally charged minefields of bankruptcy, bulimia and sexual addiction."

Dirty also received generous assistance from federal taxpayers, courtesy of the Department of Canadian Heritage. Regardless, these kinds of subsidies for Canadian content are not at issue in the Hollywood dispute.

What riles U.S. film and television are our federal and provincial subsidies for foreign films produced in Canada that have nothing to do with Canadian content. A prime example is Harsh Realm, a new show for the Fox Television Network based on the adventures of a lieutenant in the U.S. military. Because this violence-filled entertainment is shot on location with mainly Canadian crews in Vancouver, it qualifies for hefty Canadian production subsidies.

The protesters who took part in Sunday's L.A. rally are being heard. Already, they have persuaded the California state assembly to approve a 10% tax credit for wages and salaries paid by California producers to California film and television workers. The U.S. Congress is considering similar subsidies on the federal level.

How even a socialist like B.C. Premier Glen Clark might relish a costly trade war over the production of U.S. television shows in Canada is hard to grasp. To head off such a disaster for Canadian taxpayers, the Chretien government should take the lead by immediately rescinding all federal production subsidies for foreign-content films and television shows.

Would elimination of these production handouts deal a mortal blow to film and television production in Canada? Surely not. Canadian film and television workers enjoy a huge competitive advantage in the form of a dollar that is worth less than 70¢ (US). To insist that these talented workers should also benefit from unfair subsidies for foreign-content productions at the expense of other Canadian taxpayers makes no economic or moral sense.